Bitcoin (BTC) investors reeling from the impact of recent cryptocurrency company failures and banking problems may face another potential problem: the recovery of the US dollar.
US dollar strength resurfaces
In particular, the US dollar index (DXY), which tracks the dollar’s performance against a basket of major foreign currencies, is up 4% from its February 3 low of 100.82, amid expectations that the US Federal Reserve will continue raising benchmark rates to cool inflation.
inflation persists
An air of caution is maintained as new US data shows a recession is not yet imminent.
That includes the latest jobless claims, which fell 2,000 to a seasonally adjusted 190,000 in the week ending February 25, and higher consumer spending in January.
Meanwhile, 90% of US manufacturers surveyed by Bloomberg complained about rising input prices despite declining supply chain issues.
While the problem is not as severe as it was during the pandemic, the survey shows that inflationary pressure has not gone away despite the Fed’s aggressive rate hikes.
“Recent data suggests that consumer spending is not slowing as much, that the job market continues to perform unsustainably, and that inflation is not coming down as fast as thought,” said Fed Governor Christopher Waller, and added:
“If those data reports continue to be too hot, the policy target range will have to be raised even higher this year.”
Bank of America Global Research anticipates the Federal Reserve to raise the interest rate to almost 6% from the current range of 4.5-4.75%. Theoretically, it should renew investor demand for dollars by putting downward pressure on “riskier” assets like Bitcoin.
The DXY chart paints inverse head and shoulders
From a technical perspective, the US Dollar Index looks set to rally more than 4.5% in the coming months due to the formation of a classic bullish reversal pattern.
Called the inverse head and shoulders, the pattern develops when price forms three valleys below a common resistance line (neckline), with the middle valley (head) deeper than the other two (left and right shoulders). .
An inverse head and shoulders pattern resolves after price breaks above the neckline and rises by as much as the maximum height between the low of the pattern and the neckline.
If the DXY successfully breaks above its 105.25 neckline, the probability of an extended rally towards 109.75 in 2023 will be higher.
Bitcoin price to retest $20K?
The strongest outlook for the dollar comes as Bitcoin bulls fail to sustain the price rally by breaking the $25,000 technical resistance level. The BTC price has fallen by around 13% since then, with macroeconomic headwinds being one of the main reasons.
In addition, concerns about Silvergate and the potential ramifications for the industry have also kept the price in check in recent days.
Related: Bitcoin Price Drops 5% in 60 Minutes Amid Silvergate Uncertainty
“Any liquidity problems will have a direct impact on market conditions and may affect the access and availability of some client funds.” warned John Toro, head of trading at the Independent Reserve digital asset exchange.
Cryptocurrency headwinds are starting to build up and may explain the reason for the recent selloff.
• Mount Gox $BTC to unlock
• Silver Gate
• Shanghai $ETH to unlock
• Hot CPI (50bps now a real possibility)
• Sales in Asia open
• Mass liquidations
• Stock market weakness (red futures)— Miles Deutscher (@milesdeutscher) March 3, 2023
Technically, Bitcoin has maintained its short-term bullish bias by staying well above its two key EMAs: the 50-day EMA (red) near $22,500 and the 200-day EMA (blue) near $21,770.
Dump saved by the 200EMA on daily
As long as we up, gucci, down, flipping burgers $BTC pic.twitter.com/NuFL2v8V5w
—Teddy (@TeddyCleps) March 3, 2023
However, traders should watch out for a potential break below the EMAs, which, coupled with rising rates and other negative news, could see BTC price retest the key $ support level. 20,000 in the next few weeks.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making a decision.
